PROPOSAL NO. 2
Ratification of the terms of the Stock Purchase Agreement, dated July 31, 1998,
by and between the Company and the shareholders of Fanzine International, Inc.
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PURCHASE OF FANZINE INTERNATIONAL, INC.General-------
On July 31, 1998, your Company purchased 100% of the outstanding stock of
Fanzine International, Inc. ("Fanzine") located at 230 West 41st Street, Suite
1500, New York, NY 10036. All of the outstanding stock of Fanzine was owned by
four individuals, none of whom had any affiliation with the Company prior to the
purchase of Fanzine. The Stock Purchase Agreement provided for the purchase of
100% of the stock of Fanzine for a total purchase price of $7,500,000,
consisting of $4,000,000 in cash, payable over a 6-month period from July 31,
1998, and the issuance of 1,000,000 shares of the Company's common stock.
Business of Fanzine-------------------
Fanzine is a publishing company which produces a line of event driven,
mainstream magazines, which are translated into seven languages and distributed
to over twenty different nations. During fiscal 1998, Fanzine released Hit
Sensations and Hit Sensations Specials on music, television, sports and
Hollywood celebrities. Since inception in the summer of 1997, consumers have
spent over $20 million in purchases of more than 90 Fanzine domestic and foreign
releases.
The Company intends to expand Fanzine's product base with a line of high-
quality academic calendars, as well as the launch of four major new monthly
celebrity magazines: CELEBRITY STYLE, TEEN CELEBRITY, GYM and BURN.
CELEBRITY STYLE and TEEN CELEBRITY (two of the largest launches in the
entire magazine industry in 1998) will each distribute more than 700,000 copies
on newsstands throughout the United States and Canada. Both publications are
intended to take advantage of the heightened interest in entertainment
celebrities and their lifestyles. Competitive sales data indicates that this
genre is currently very popular. GYM and BURN will offer practical health,
fitness and nutritional advice for today's male reader. Like CELEBRITY STYLE and
TEEN CELEBRITY, GYM and BURN will feature strong editorial content as well as
exceptional packaging quality. GYM and BURN are scheduled to hit newsstands
during the first quarter of 1999. 5
Terms of the Transaction------------------------
Pursuant to a Stock Purchase Agreement, on July 31, 1998, the Company
purchased 100% of the stock of Fanzine for a total purchase price of $7,500,000,
consisting of $4,000,000 cash payable over a six-month period from closing and
1,000,000 shares of the Company's common stock. The shares of the Company's
restricted common stock were issued to the selling shareholders of Fanzine. The
issuance of the restricted shares did not involve an underwriter and no discount
or commission was paid in connection therewith. The acquisition has been
accounted for as a purchase. As such, the excess of the aggregate purchase price
over the fair market values of net assets acquired, which consisted mainly of
licenses, trademarks, and publishing rights, was allocated principally to good
will. The final acquisition purchase price is subject to certain earn-out
contingencies during the first five quarters following the closing. Also, the
selling shareholders of Fanzine have the right to redeem their respective shares
of the registrant at a price of $8.00 per share on a quarterly basis if certain
minimum earning levels, as defined in the Stock Purchase Agreement, are met
during any four quarters of the first five quarters following the closing.
The initial cash payable of $2,000,000 and the balance due was principally
financed by long-term convertible debentures.
This summary does not purport to be a complete description of all the terms
of the transaction and is qualified in its entirety by reference to the Stock
Purchase Agreement, a copy of which is attached to this proxy as Appendix I.
Federal Income Tax Consequence of the Transaction
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There are no federal tax consequences to the Company or its shareholders in
connection with the transaction.Shareholder Vote Required
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Although shareholder approval was not required, under Delaware law, to
enter into or to perform the Stock Purchase Agreement, the Company realized,
subsequent to the execution and completion of the Fanzine transaction, that,
inasmuch as the issuance of 1,000,000 shares of the Company's common stock on
July 31, 1998, represented 20.4% of the Company's then total shares outstanding,
shareholder approval was required in order to comply with continuing listing
requirements for the NASDAQ Small Cap market. As required by NASDAQ market
rules, in order to satisfy continuing inclusion requirements, transactions that
involve the issuance of in excess of 20% of a Company's common stock must be
approved by its shareholders. Therefore, in order to remedy the Company's
inadvertent failure to comply with NASDAQ Small Cap marketplace rule, the
Company is seeking shareholder ratification, by a majority of the shares voting,
in person or by proxy, on the matter (without regard to the vote of the shares
issued in connection with the Fanzine transaction) of the terms of the Fanzine
transaction. If the terms of the acquisition of Fanzine are not ratified, the
Company intends to request that the Selling
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Shareholders of all of Fanzine's outstanding common stock agree to re-negotiate
the transaction so that the number of shares issuable in the transaction on July
31, 1998, would be less than 20% of the Company's outstanding shares on such
date. Inasmuch as the Board of Directors believes the transaction and its terms
are in the best interest of the Company and that it will likely be approved by
the shareholders, there have been no discussions with the Selling Shareholders
of Fanzine's outstanding common stock regarding re-negotiation of the terms of
the transaction.Board of Directors Recommendation
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THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE TERMS OF THE TRANSACTION AT
THE TIME THE STOCK PURCHASE AGREEMENT WAS EXECUTED AND THE ACQUISITION WAS
CONSUMMATED, HAVING DETERMINED THAT THE TRANSACTION, AND ITS TERMS, ARE IN THE
BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO
RATIFY THE TERMS OF THE TRANSACTION. |
